Publication: Credit Rating Agencies in Emerging Democracies : Guardians of Fiscal Discipline?
Date
2013-03
ISSN
Published
2013-03
Author(s)
Abstract
Credit rating agencies have drawn
criticism for failing to anticipate and deter root causes of
the 2008-2009 financial crisis in the United States.
However, this paper presents evidence that credit rating
agencies regularly anticipate and deter governments in
emerging democracies from opportunistic borrowing and
potential financial crises related to elections and the
political budget cycle behavior they encourage. The paper
considers a sample of 18 such countries holding 32
presidential elections from 1989 to 2004. The analysis shows
that credit rating agencies induced greater fiscal
discipline during election periods when governments had
incentives to borrow opportunistically for short-term
electoral gain. Countries with higher credit rating agency
sovereign ratings borrowed less than lower-rated countries
in election periods, but borrowed more in non-election
periods. Credit rating agencies promoted fiscal discipline
during increasingly frequent election periods in emerging democracies.
Link to Data Set
Citation
“Hanusch, Marek; Vaaler, Paul M.; Hanusch, Marek. 2013. Credit Rating Agencies in Emerging Democracies : Guardians of Fiscal Discipline?. Policy Research Working Paper;No. 6379. © World Bank, Washington, DC. http://hdl.handle.net/10986/13180 License: CC BY 3.0 IGO.”
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